Microsoft FY26 Q4 Earnings: GAAP net income up 31%, Azure milestone, and more

Overview of FY26 Q4 results

Microsoft posted revenue of $90.0 billion for the quarter, up 18% year over year and up 17% in constant currency. Operating income reached $40.6 billion, an 18% increase, while GAAP net income was $35.8 billion, up 31% year over year. On a non-GAAP basis, net income was $35.3 billion, rising 22%. Diluted earnings per share stood at $4.81 (GAAP), up 32%, and $4.74 (non-GAAP), up 23%.

Management highlighted that non-GAAP results exclude the impact from investments in OpenAI. Several discrete items affected the quarter relative to forward guidance, delivering a net EPS benefit of $0.27. These items included a $3.2 billion gain from the Anthropic investment and lower-than-expected Voluntary Retirement Program expenses, partially offset by severance expense and impairment charges in Xbox. When adjusted for these items, the company says it exceeded expectations across revenue, operating income, and diluted earnings per share.

In the same press release, leadership noted continued momentum in cloud and AI and quoted Satya Nadella: “This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats.”

GAAP vs. non-GAAP adjustments and discrete items

The company provides a reconciliation between GAAP and non-GAAP results, with the non-GAAP figures excluding the impact from investments in OpenAI. In the quarter, a $0.27 per share benefit arose from discrete items, including a $3.2 billion gain from Anthropic and lower-than-expected Voluntary Retirement Program expenses, offset by severance and Xbox impairment charges. Notably, the Anthropic gain is included in both GAAP and non-GAAP results, since the non-GAAP presentation excludes only the OpenAI effects. This distinction helps readers understand why the reported beat may reflect non-operational contributions as well as underlying operating performance.

Looking at the annual figures, Microsoft reported for the full fiscal year 2026 a GAAP net income of $133.7 billion, up 31% year over year, and a GAAP diluted EPS of $17.95, up 32%. The full-year non-GAAP net income rose 22% year over year, with diluted EPS at $14.13, up 22% as well. These numbers reflect OpenAI-related adjustments and the impact of other discrete items across the year.

Azure milestone and cloud momentum

In the year, Azure and related cloud services continued to lead Microsoft’s early AI and cloud expansion. The press release quotes a full-year Azure milestone: “For the full fiscal year 2026, Azure revenue surpassed $100 billion for the first time.” Microsoft Cloud revenue was $59.3 billion in the quarter, up 27% year over year, underscoring the strength of the platform as demand for AI-enabled infrastructure remains robust.

Overall cloud-related strength contributed to a broader backdrop of resilience across segments, with Microsoft 365 Copilot reaching more than 30 million paid seats and Azure capacity expanding to support faster AI workloads and flows of data across customers’ environments.

In the quarter, the company reported a constant-currency revenue growth of 17% (GAAP-reported growth was 18%), with a $391 million positive impact from currency movements on revenue, illustrating a modest tailwind to reported growth.

Segment performance and profitability

Management provides a view of profitability by segment to complement the revenue mix. For Productivity and Business Processes, operating income was $21.9 billion for the quarter. Intelligent Cloud delivered $15.955 billion in operating income, while More Personal Computing produced $2.748 billion in operating income for the quarter. This mix highlights where the company’s profitability is strongest and how the investment cadence is allocated across segments.

The Business Highlights also show that Microsoft Cloud revenue rose 27% in the quarter, and commercial remaining performance obligation increased 84% year over year to $678 billion, signaling substantial revenue visibility tied to cloud commitments and AI-related deployments.

In the broader year, the Intelligent Cloud segment benefited from Azure growth, and the cloud/Copilot momentum helped push margins higher even as other areas faced headwinds.

Capex, cash flow, and shareholder returns

Cash flow from operations was strong, with $55.4 billion generated in the June quarter and $182.9 billion for the full year 2026. This cash flow supports dividends, buybacks, and ongoing AI infrastructure expansion. Additions to property and equipment totaled $35.8 billion in Q4 and $115.9 billion for FY26, illustrating ongoing investment to scale AI capacity and data-center capabilities. The capital expenditure mix emphasized CPU/GPU hardware and related 3P capacity to fuel AI workloads.

Shareholder returns totaled $10.2 billion in the fourth quarter, comprising $6.758 billion in cash dividends and $4.579 billion in share repurchases. This breakdown shows the allocation between income generation and capital returns to shareholders, with dividends growing over prior periods and buybacks contributing to per-share metrics.

Beyond the quarter, operating cash flow remains a key driver of the dividend and buyback program, underlying the company’s ability to sustain capital investments while returning cash to shareholders.

OpenAI and non-GAAP framing

The press release presents non-GAAP results that exclude the impact of investments in OpenAI, while GAAP results include those impacts. For the quarter, OpenAI-related net gains contributed to a portion of the bottom line, with a reported non-GAAP framework designed to help readers assess core operating performance. Specifically, OpenAI gains were quoted as $480 million in net income and $0.07 in diluted earnings per share for the quarter, with a full-year impact of $4,963 million and $0.67, respectively. The year-over-year comparison benefits from the swing in OpenAI-related results, particularly when contrasted with the prior year’s OpenAI losses that affected GAAP and non-GAAP figures differently.

Other items, including discrete investments such as Anthropic, also contributed to the earnings mix. The company notes that a portion of these gains are reflected in both GAAP and non-GAAP results, and the reconciliation framework is provided to aid investors in understanding the underlying operating performance versus reported results.

Currency effects and outlook context

Currency movements had a limited net impact on revenue; the quarterly constant-currency reconciliation shows a 17% growth versus 18% GAAP growth, with a $391 million positive constant-currency impact on revenue in the quarter. The company articulates forward-looking guidance on the earnings call, but the present article focuses on the FY26 Q4 results and does not relay specific quarterly forward-looking figures for FY27 beyond what is in the press release.

What to watch in FY27

Investors should keep an eye on Copilot seat growth, Azure capacity expansion, and capex efficiency as key catalysts for continued cloud and AI-driven expansion. Copilot seat growth and broader AI adoption will influence software- and platform-related revenue, while capex efficiency will shape free cash flow and the pace of share repurchases and dividends. The Azure-related momentum, including the $100 billion annual milestone achieved in FY26, sets a high bar for the next year’s cloud trajectory.

Notes on data quality and definitions

All figures are presented relative to the June 30, 2026 quarter or the full fiscal year ended June 30, 2026. The press release provides the GAAP and non-GAAP reconciliations, as well as constant-currency reconciliations and segment-level results. Readers should note that OpenAI impacts are excluded from the non-GAAP presentation, while Anthropic gains are included in GAAP and non-GAAP results. The RPO figure of $678 billion reflects contracted future revenue and is a forward-looking indicator of revenue visibility, particularly in cloud and AI.

Key figures cited in this article include: quarterly revenue of $90.0 billion; quarterly operating income of $40.6 billion; quarterly GAAP net income of $35.766 billion; quarterly diluted EPS of $4.81; full-year revenue of $331.8 billion; full-year GAAP net income of $133.7 billion; and full-year diluted EPS of $17.95. Additional context includes Azure/Intelligent Cloud strength, a >$100 billion annual Azure revenue milestone, and a total quarterly shareholder return of $10.2 billion composed of $6.758 billion in dividends and $4.579 billion in share repurchases.